Wholesale Distributors Ltd v Songle Supermarket Ltd
[2014] NZHC 2548
•17 October 2014
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV-2014-404-002551 [2014] NZHC 2548
BETWEEN WHOLESALE DISTRIBUTORS
LIMITED Plaintiff
AND
SONGLE SUPERMARKET LIMITED First Defendant
DAVID GLENN BROWN Second Defendant
SONIA PAULINE BROWN Third Defendant
MATTHEW DAVID IGGULDEN AND AMANDA KATHLEEN IGGULDEN Fourth Defendants
Hearing: 8 October 2014 Appearances:
Bret Gustafson and Rebecca Hopkins for the Plaintiff
Philip Rzepecky for the First to Third Defendants (appearance excused)
Kelly Quinn and Stephanie Thompson for the Fourth
DefendantsJudgment:
17 October 2014
RESERVED JUDGMENT OF MOORE J
This judgment was delivered by on 17 October 2014 at 1:00pm pursuant to Rule 11.5 of the High Court Rules.
Registrar/ Deputy Registrar
Date:
WHOLESALE DISTRIBUTORS LIMITED v SONGLE SUPERMARKET LIMITED & ORS [2014] NZHC
2548 [17 October 2014]
[1] Wholesale Distributors Limited (“WDL”) is a division of Progressive Enterprises Limited. It is the franchisor for a group of supermarkets known as SuperValue and FreshChoice.
[2] One of its SuperValue stores is situated in the Coromandel holiday town of
Pauanui. It is the only supermarket in that community.
[3] The franchisee and owner of the business is Songle Supermarket Limited (“Songle”), the first defendant. The shareholders of Songle are David and Pauline Brown, the second and third defendants.
[4] In 2007 Songle entered into a franchise agreement with WDL when Songle purchased the Pauanui SuperValue store. The term of the franchise agreement was
10 years although after that initial term the agreement could be either renewed or would roll over on a yearly basis.
[5] The provisions of the franchise agreement included, amongst others, terms covering the following topics:
(a) a prohibition on carrying out any other trading activity; (b) WDL’s rights on the sale of the business by Songle;
(c) WDL’s rights on termination of the franchise agreement.
[6] Clause 11.5 of the franchise agreement deals with the obligations on a franchisee when it wishes to dispose of its interest in premises which are the subject of a franchise agreement. The franchisee must, in the first instance, offer its interest to WDL and only if declined by WDL may it offer its interest to third parties subject to WDL’s written approval and the requirement that any offer to a third party includes a term giving WDL a right of first refusal identical to clause 11.5(b).
[7] Clause 11.5 is reproduced in its entirety below:
Clause 11.5
Where an Offer Notice has been given by the Franchisee and declined by WDL then the Franchisee may(subject to clause 11.4) offer its interest in the Premises to a third party if:
(a) WDL gives its written approval, such approval not to be unreasonably withheld by WDL in the case of a respectable and responsible party with the financial resources in the reasonable opinion of WDL to meet the commitments with respect to the Premises and the Business; and
(b) the offer include a term requiring the third party to give WDL a right of first refusal identical to this clause 11 (but substituting the third party’s name for the Franchisee) in the event that the third party wishes to sell, assign, sublease or otherwise dispose of the third party’s interest in any part of the Premises, the Business and the Assets;
(c) WDL is satisfied as to documentation evidencing compliance with clause 11.5(b) before such assignment, sublease or other disposition is effected.
[8] Over the last three or four years Songle has attempted to sell the supermarket but has attracted relatively little interest from prospective purchasers. This, apparently, has been due at least in part, to uncertainties around Songle’s lease which for a while seemed unlikely to be renewed. However, through the intervention of WDL, negotiations with Songle’s landlord resulted in a 20 year lease renewal effective from December 2013. As a result efforts to promote the business for sale were revived.
[9] In late June 2014 a young couple, Matthew and Amanda Iggulden, saw an advertisement in “Grocer Broker” for the sale of Songle’s SuperValue grocery store at Pauanui. For just under two years they had been running the Buffalo Beach Four Square in Whitianga. Four Square is part of the Foodstuffs group of supermarkets and grocery stores. It competes directly with WDL.
[10] Matthew and Amanda Iggulden did not see themselves as long term owners and managers of that business. Their ultimate ambition was to become owners/ operators of a full sized supermarket such as New World. In order to achieve that goal they knew they needed to work their way up the supermarket ownership ladder.
The opportunity to buy a bigger operation like Songle’s Pauanui store piqued their interest because it was a good deal bigger than the Buffalo Beach store they had been operating. For them it represented the next rung on the ladder.
[11] As a result, they contacted the listing agent who sent them recent financial statements which, to the Igguldens (and it seems the vendor’s agent), appeared conservative given the size and turnover of the business.
[12] The Igguldens decided to make an offer. Their solicitor suggested that a due diligence clause be included in any agreement. A draft agreement for sale and purchase was forwarded to them by the agent. This agreement included a number of other special conditions which had been included by the agent. Most of these appeared to favour the purchasers. Following legal advice the Igguldens entered into the agreement for sale and purchase on 14 July 2014. The purchase price was
$1.280 million.
[13] Three days later Songle emailed WDL, enclosing a copy of the agreement for
sale and purchase and requesting WDL’s support in progressing the sale.
[14] Seven of the special conditions in the agreement deserve mention here:
(a) Clause 18 required the purchasers’ solicitors’ approval within five
working days. That was given on 21 July 2014.
(b) Clause 19 was the due diligence clause inserted by the Igguldens’
solicitors. This gave the purchasers 40 working days (expiring on
8 September 2014) to complete due diligence. This condition was satisfied on 5 September 2014.
(c) Clause 8.1 was the finance condition which had until 15 September
2014 to be satisfied. The finance to purchase the Pauanui business was expected to come from the proceeds of the Buffalo Beach store. Although there was some initial interest from potential purchasers, this waned and thus the Igguldens began to explore the alternative
options of obtaining bridging finance or being permitted to own both the Buffalo Beach and Pauanui stores at the same time. As for the latter, the Igguldens understood this could only occur if both stores were franchised under the Four Square banner.
(d)Clause 8.2 related to the landlord’s consent to the purchase of the lease which was not expected to pose a difficulty. This is dealt with below.
(e) Clause 21 related to the transfer of the Lotto franchise which was finally approved.
(f) Clause 22 related to liquor licensing and, was satisfied on 8 October
2014.
(g)Clause 23 required WDL’s approval of the sale. It is this clause which is at the centre of the present dispute and its provenance requires some explanation.
[15] Clause 23 of the agreement for sale and purchase is reproduced in full below:
Clause 23 – Wholesale Distributors Ltd Approval
This agreement is conditional upon Wholesale Distributors Ltd consenting to the Purchaser as acquiring the business and the transfer of the Franchise Agreement to the Purchaser or its nominees on terms and conditions satisfactory to the Purchaser. This condition is to be fulfilled by the 15th day of September 2014. This condition is inserted for the sole benefit of the Purchaser.
[16] The reference to the clause being inserted for the sole benefit of the purchaser is not unique to clause 23. There are five such references in the agreement for sale and purchase.1
[17] After WDL received a copy of the agreement the agent, who had some experience working with WDL franchisees, operated as an intermediary between the
1 This includes clause 18 (Purchasers’ solicitors’ approval); clause 19 (Due diligence); clause 21
(Transfer of Lotto franchise); clause 22 (Liquor licensing); clause 23 (WDL approval).
Igguldens and WDL. He arranged a meeting between the parties which took place last August. By this time WDL was aware that the Igguldens wished to operate the Pauanui store as a Four Square store rather than under the SuperValue banner. There is some disagreement as to whether the agent advised the Igguldens that absent WDL’s consent, such a course would not be possible. It is also in dispute whether there were any discussions at this meeting about the Igguldens asking whether, in the event the Buffalo Beach store was not sold, they could operate that store as a Four Square and the Pauanui store as a SuperValue. WDL says that such a conversation took place. The Igguldens deny this and say this was never discussed because they always knew that neither WDL nor Foodstuffs would permit such a course.
[18] In any event, it is the Igguldens’ position that by the time they met with WDL they were already actively considering converting the Pauanui store to a Four Square outlet and would never have accepted any restriction on their ability to do that.
[19] WDL had by that time received a copy of the agreement for sale and purchase. That happened on 17 July 2014. Clause 23, which on the evidence was inserted by Songle’s agent, is expressed to be for the benefit of the purchasers. The purpose of the agreement being sent to WDL is obvious. It was in order to ensure that WDL was given notice of the terms of the agreement to sell one of their franchised stores thus ensuring WDL’s rights under the franchise agreement would be protected in the event of the sale of the business. The wording of clause 23 could not be plainer. Unequivocally it conveys that it is the intention of the parties that in the event the purchaser did not wish to be bound by the provisions of the franchise agreement, the purchaser could elect to opt out by waiving that condition.
[20] Indeed, WDL’s own evidence reinforces that WDL knew, through its agent, that clause 23 allowed the Igguldens to waive that condition because the vendor’s agent inserted it; not the Igguldens.
[21] The timeline is important. On 12 September 2014 the Igguldens advised Songle that they waived certain conditions (expressed to be for their sole benefit) and had satisfied others. The agreement was thus declared to be unconditional. Three days later Songle disputed the Igguldens’ ability to waive clause 23. This was
despite the wording of condition 8.3(b) of the agreement which purported to authorise a party which was the express beneficiary of the condition to waive it.
[22] Three days later the Igguldens paid the deposit. A few days after that WDL’s solicitors asked the Igguldens’ solicitors if the Igguldens intended to become SuperValue franchisees. By return, WDL was advised that the Igguldens did not intend to become SuperValue franchisees.
[23] The Buffalo Beach store, despite the earlier difficulties in securing a purchaser, is now subject to an agreement for sale and purchase. This was entered into on 11 September 2014 and the most recent advice, provided by Mr Quinn, counsel for the Igguldens, is that the only condition which remains to be satisfied is the landlord’s consent which is expected to be confirmed very shortly.
These proceedings
[24] On 26 September 2014 WDL brought the present proceedings and applied for interim orders expressed in the alternative, namely that Songle and Mr and Mrs Brown be restrained from settling the sale of the Pauanui SuperValue business or, alternatively, an order that Songle not dispose of the purchase price until further order of the Court.
[25] WDL’s proceedings contain two causes of action. The first is against Songle and the Browns. The second is against the Igguldens.
Songle and the Browns
[26] The first cause of action alleges breach of contract and claims Songle breached the franchise agreement in three material respects, namely by entering into the agreement for sale and purchase without:
(a) the written approval of WDL contrary to clause 11.5(a) of the franchise agreement;
(b)including a term requiring the Igguldens to give WDL a first right of refusal identical to that contained in clause 11 of the franchise agreement as required under clause 11.5(c);
(c) the plaintiff first being satisfied as to documentation evidencing compliance with clause 11.5(b) as required under clause 11.5(c).
[27] The relief sought is a permanent injunction restraining Songle from selling the business to the Igguldens other than in compliance with the franchise agreement or alternatively an award of damages, including the loss of the franchise fee (over the course of 19 years being the period of the balance of the lease), loss of goodwill and loss of brand recognition.
The Igguldens
[28] The second cause of action is based on the tort of interference with contractual relations. WDL claim that the Igguldens were, at all material times, aware that the sale of Songle’s business required the prior approval of WDL. They claim that the Igguldens, by entering into the agreement with Songle, which stipulated clause 23 (WDL’s approval) was solely for their benefit and by waiving that condition and having no intention to be a franchisee of WDL, caused Songle to breach its franchise agreement with WDL.
[29] The relief sought is the same as that against the other defendants.
[30] On 26 September 2014 Andrews J, in circumstances of claimed urgency, made interim orders preserving the status quo until the hearing of the interim injunction.
[31] Mr Rzepecky, for Songle and the Browns, has filed a partial notice of opposition confirming that his clients neither oppose nor consent to the continuation of the injunction. They have played no active part in these proceedings.
[32] Thus the argument in relation to the application for interim relief relates to the second cause of action which involves the contest between WDL and the Igguldens.
Legal principles
[33] Both counsel accepted that the principles to be applied in considering applications for interim injunctions are those as set out by the Court of Appeal in Klissers Farmhouse Bakeries v Harvest Bakeries Limited. 2 These are:
(a) whether there is a serious question to be tried;
(b)whether the balance of convenience favours the granting of an injunction;
(c) whether the overall justice of the case favours the granting of an injunction.
[34] Thus, the Court must first consider whether there is a serious question to be tried and, if there is, whether damages would provide an adequate remedy and against that, where the balance of convenience properly lies. Finally, the Court is required to step back and consider where the overall justice lies.
[35] I note that after identifying those issues Cooke J (as he then was) in Klissers
Farmhouse Bakers emphasised that:3
… an interlocutory decision of this kind is essentially discretionary and its solution cannot be governed and is not much simplified by generalities.
[36] I shall now turn to separately consider these issues.
Is there a serious question to be tried?
[37] As emerged from the argument, there does not appear to be any concerted argument that the first cause of action discloses a serious question to be tried, namely
the claim that Songle and the Browns breached the franchise agreement with WDL. However, the issue in the present matter requires me to also consider whether there is a serious question to be tried in relation to the second cause of action against the Igguldens.
[38] The second cause of action claims that the Igguldens committed the tort of interference with contractual relations. The Court of Appeal in Diver v Loktronic4 discussed the essential elements which require proof of this tort. These are set out below:5
(a) there must be a legally enforceable contract in existence;
(b)the defendant must have engaged in conduct which, in fact, induced a breach of contract;
(c) the defendant must have known that his or her conduct would induce the breach; and
(d) the defendant’s inducing conduct must have caused the loss to the
plaintiff.
Was there a legally enforceable contract?
[39] There is no dispute that Songle’s franchise agreement with WDL is legally enforceable. Rather, the focus of the contest in the second cause of action is whether the Igguldens, with the requisite knowledge, induced a breach of clause 11.5 by their conduct.
Did the defendant engage in conduct which induced a breach?
[40] The parties disagree on the question of when the alleged breach occurred. This is crucial to determining whether any inducing conduct occurred. WDL claim that the operative breach occurred when the Igguldens waived the conditions in the agreement for sale and purchase making it unconditional when WDL had not given
their consent to the waiver. Mr Gustafson, for WDL, submits the breach occurred not at the time when the agreement was entered into, but when it proceeded without WDL’s consent.
[41] WDL claims that by waiving clause 23 and having no intention to become a
WDL franchisee the Igguldens caused Songle to breach its franchise agreement.
[42] On the other hand, Mr Quinn for the Igguldens, submits that any breach of the franchise agreement occurred when the agreement for sale and purchase was first offered without that agreement being conditional on:
(a) WDL’s written approval;
(b) the Igguldens giving WDL the first right of refusal; (c) WDL being satisfied as to clause 11.5(b).
[43] Mr Quinn submits that as the franchise agreement required Songle to make the agreement conditional on specific terms the mere offer of an agreement, absent those terms, constitutes a breach. He submits that while the contract going unconditional may relate to the loss flowing from the breach, the breach occurred at the time the offer was made.
[44] Obviously, but for the Igguldens being a party to the agreement for sale and purchase, there could have been no breach of the franchise agreement. However, whether the Igguldens caused Songle to commit a breach is less straightforward.
[45] There must be some form of active persuasion.6 The test as in OBG Ltd v Allan is “did the defendant’s acts of encouragement, threats and so forth have a sufficient causal connection with the breach by the contracting party.”7
[46] The Igguldens were expressly authorised by the terms of the agreement to waive clause 23. Clause 23 may have been drafted contrary to the provisions of the
6 Jiao v Barge [2006] NZCA 168.
7 OBG Ltd v Allan [2007] UKHL 21; [2008] 1 AC 1 at [46].
franchise agreement but that factor cannot extend liability to the Igguldens except in special circumstances.
[47] On 15 September 2014 Songle’s solicitor emailed the Igguldens’ solicitor
advising that Songle did not accept the waiving of the WDL consent clause (clause
23) and that WDL’s consent was a requirement under the agreement. The Igguldens’ solicitors’ response was that it was for the Igguldens to waive the WDL consent condition8 and confirmed that the agreement was unconditional. WDL’s solicitors advised Songle that WDL’s failure to approve the Igguldens as purchasers meant that Songle was in breach of the franchise agreement and requested Songle to remedy it.
[48] In my view, on the evidence available to me on this application, there is a paucity of proof the Igguldens engaged in conduct which induced a breach.
Did the Igguldens know their conduct would induce the breach?
[49] The significance of when the breach occurred is central to the resolution of this element. That is because Mr Quinn submits the evidence demonstrates that the Igguldens’ knowledge of the core requirements in the franchise agreement only materialised late in the sequence and well after any breach may have occurred. The Igguldens’ evidence is that they did not know of the existence of clause 11.5 of the franchise agreement until after the agreement became unconditional. Mr Quinn submits the available evidence supports this claim because the Igguldens were not provided with a copy of the franchise agreement. Furthermore, he submits that clause 23 of the agreement for sale and purchase was expressed as being for the sole benefit of the purchasers and thus contradicts WDL’s claim that it had an absolute right to approve purchasers. Matthew Iggulden commented to his solicitor that the clause looked “pretty standard”. There was no negotiation over clause 23 other than changing the due date for satisfaction, as with the other conditions.
[50] However, in contrast, Mr Gustafson submits that by 15 September 2014 (the date when the Igguldens purported to waive clause 23) at the latest, the Igguldens
were aware that Songle did not accept the WDL consent clause could be waived and
8 Reliance was placed on the reference in the agreement to the phrase, “The clause is inserted for the sole benefit of the purchaser.”
that after that date, but before the agreement became unconditional, there were various acts and declarations on the part of the Igguldens which indicate that the Igguldens knew of the requirement in the franchise agreement that WDL needed to approve any purchase of the Songle business.
[51] The Court of Appeal has recently considered the question of what constitutes requisite knowledge to prove the tort:9
[34] As to what constitutes knowledge in this context, their Lordships in OBG accepted that a lesser state than actual knowledge would suffice. Lord Hoffmann put it in this way in endorsing the position of Lord Denning MR to the same effect in Emerald Construction Co Ltd v Lowthian:
[40] … in Emerald Construction … union officials threatened a building contractor with a strike unless he terminated a subcontract for the supply of labour. The defendants obviously knew that there was a contract – they wanted it terminated – but the court found that they did not know its terms and, in particular, how soon it could be terminated. Lord Denning MR said, at pp 700-701:
Even if they did not know the actual terms of the contract, but had the means of knowledge – which they deliberately disregarded – that would be enough. Like the man who turns a blind eye. So here, if the officers deliberately sought to get this contract terminated, heedless of its terms, regardless whether it was terminated by breach or not, they would do wrong. For it is unlawful for a third person to procure a breach of contract knowingly, or recklessly, indifferent whether it is a breach or not.
[35] Lord Hoffman noted that Lord Denning’s statement had been followed in many cases without apparently given rise to any difficulty. Lord Hoffmann also considered the statement was consistent with “the general principle of law that a conscious decision not to inquire into the existence of a fact is in many cases treated as equivalent to knowledge of that fact”. Importantly, for present purposes, Lord Hoffmann continued:
[41] … It is not the same as negligence or even gross negligence: in British Industrial Plastics …, for example, [the defendant] did not deliberately abstain from inquiry into whether disclosure of the secret process would be a breach of contract. He negligently made the wrong inquiry, but that is an altogether different state of mind.
[52] In other words, if the evidence discloses wilful blindness on the part of the defendant in the sense that enquiries as to the correct position were deliberately not
9 Diver v Loktronic Industries Ltd, above n 4.
made in circumstances where, had they been, the party would been appraised of the true position, such conduct would satisfy the requisite element of knowledge.
[53] WDL, in the absence of direct evidence, relies on inferences to prove the requisite knowledge. Mr Gustafson points to the Igguldens’ industry knowledge of franchisees; that their experience with Four Square would have alerted them to believe that Songle’s business would have been tied to WDL despite the wording of the agreement for sale and purchase. Furthermore, he argue the meeting with WDL, at which the question of its franchise was discussed, would have made WDL’s position clear so that the Igguldens knew, or at the least deliberately closed their eyes to, the likelihood that the condition could not be waived and thus the requisite knowledge is proved.
[54] In my view the evidence before me is insufficient to carry that inference.
[55] Thus, in relation to the second cause of action I am not satisfied WDL has established there is a serious question to be tried. But, in the event I am wrong, I shall also consider the other factors which are required to be considered on such an application.
Where does the balance of convenience lie?
[56] There are a number of factors which I am required to consider when weighing where the balance of convenience lies.
Adequacy of damages for WDL if this application is not allowed but WDL succeeds in its claim
[57] As Wild J observed in Wellington International Airport Limited v Air New Zealand Limited a key consideration in the assessment of the balance of convenience is whether either party will suffer unquantifiable loss in the event that they are successful at trial but not on the interim application.10 Mr Gustafson submits that damages would not be an adequate remedy for the plaintiff if it ultimately succeeds.
He submits that damages would be extremely difficult, if not impossible, to quantify.
10 Wellington International Airport Limited v Air New Zealand Limited HC Wellington CIV-2007-485-
1756, 30 July 2008 at [4]-[14].
Further, he submits that there is a real issue as to the ability of the defendants to meet any award of damages.
[58] Mr Gustafson also registers the concern that there is no evidence the Igguldens would have the means to meet any order for damages made against them. This is an important and relevant factor to be taken into account when considering where the balance of convenience in this case lies.11
[59] Mr Gustafson submits that WDL will suffer unquantifiable loss in the form of loss of profits. He submits that WDL will be entitled, at the least, to its loss of profits for the next 19 years, being the remaining term of the lease. Because the franchise fee is based on a percentage of turnover, he submits it would be extremely difficult to quantity this amount over such a long period where the relevant variables, such as the future development and demographics of Pauanui, are so difficult to predict.
[60] Mr Gustafson also submits that the loss to WDL of its SuperValue brand recognition and goodwill will involve the calculation of losses which are next to impossible to quantify. In support of this submission he pointed out that the size of the permanent resident population of Pauanui is relatively modest but swells significantly during holidays, particularly during the Christmas and New Year period. Because the Pauanui store is the only supermarket readily available to
Pauanui holidaymakers12 he submits that Pauanui provides a unique opportunity to
promote the SuperValue brand to the “well heeled” holidaymakers of Pauanui. In support of this argument, he relies on the judgment of Winklemann J in Health Club Brands Limited v Colven Botany Limited.13
[61] In contrast, Mr Quinn submits that while loss of brand recognition and goodwill may be difficult to quantify, it is not an impossible exercise. He submits
that the formula for calculating the franchise fees is prescribed by the terms of the
11 Watson & Son Ltd v Active Manuka Honey Association [2008] NZHC 1940.
12 The nearest alternative supermarket is situated in Tairua, approximately 30 minutes drive from
Pauanui.
13 Health Club Brands Limited v Colven Botany Limited [2013] NZHC 428, an authority which he described as being almost on all fours with the present.
franchise agreement. The Court must determine the likely number of years that a franchise agreement on similar terms would exist and then weigh up WDL’s claim that the lease had a further 19 years to run against any evidence the franchise might have ended before then. He submits there is little difficulty in calculating a discounted net present value to measure such a loss.
[62] Furthermore, he submits that while there may be some adverse effects to WDL’s brand recognition and goodwill in the event it was to lose the SuperValue brand in Pauanui this would be very limited. In that context he contrasted the present facts with those which confronted Winkelmann J in Health Club Brands Limited where there were only five franchises compared with WDL’s 59 SuperValue stores nationally. Unlike the effects on the Health Club Brands Limited’s franchise, the loss to WDL of the Pauanui franchise would present less than two per cent of its total franchise complement.
[63] Mr Quinn also challenged the assumptions around Mr Gustafson’s submission regarding brand recognition, particularly amongst affluent Pauanui holiday makers, noting that Pauanui is not the exclusive summer playground of the “well heeled” but, in any event, the vast majority of holiday makers are drawn from towns and cities where much larger supermarkets operate under different brands.
[64] Furthermore, Mr Quinn submits it should not be overlooked that WDL had the opportunity to purchase the Pauanui business itself under clause 11.5 but declined to do so. Had it elected to purchase the business from Songle it would have retained brand recognition and goodwill in the area. It elected not to do so.
[65] I am satisfied that while not straightforward, quantifying WDL’s loss of profit is capable of calculation. Furthermore, given the size of WDL’s franchise operation any loss of brand recognition and goodwill would be minimal.
[66] Additionally I am satisfied that the defendants have the ability to pay any damages ordered. Any damages order against Songle and the Browns could be met from the sale proceeds of approximately $1.3 million. I was also advised that the Browns own two properties in Pauanui although the value and details of the equity in
that real estate has not been the subject of evidence. I put little weight on that factor. Furthermore if the application is refused the Igguldens will own the Pauanui business and have previously expressed their confidence it will trade well. I am satisfied that any award made against them would be able to be met through this asset.
Adequacy of damages for the Igguldens in the event interim orders were made but
WDL is unsuccessful at trial
[67] Against the claim that WDL’s losses are unquantifiable, the Igguldens’ unquantifiable losses should also be considered. They claim that if the application for interim relief succeeded, effectively they will be prevented from earning an income and will be stranded and unable to provide for themselves. Several adverse consequences on the Igguldens and their family were identified by Mr Quinn in the event WDL’s application was to succeed.
(a) First, the agreement on the Buffalo beach business appears close to becoming unconditional. The only remaining condition to be satisfied is the landlord’s consent and this seems likely to be received in the near future. Settlement is on 1 December 2014. From that date the Igguldens would have no work or income although they would have the cash funds from the sale of the Buffalo Beach business.
(b)Secondly, the Igguldens’ children have been told they will be leaving Mercury Bay Area School to start at Tairua school. To begin again at Mercury, only to then move to a school near where the Igguldens are able to find work and then, possibly, move again to Pauanui would be stressful, disruptive and plainly undesirable. Their youngest son is only days away from starting at school for the first time.
(c) Thirdly, Mrs Iggulden’s mother resigned from her job in September
2014 to follow the family to Pauanui. In this period of uncertainty she is unable to seek or accept alternative work until the family’s future is confirmed.
[68] Furthermore the Igguldens may not be able to purchase the business if the settlement is delayed due to their diminishing capital or because they have purchased another store or moved elsewhere.
[69] In response, Mr Gustafson submits that only limited weight can be given to these considerations for two reasons. First, individuals unconnected with the proceedings are often innocent victims in these matters and, secondly, the Igguldens brought this upon themselves. They created their own inconvenience and cannot now have it taken into account in balancing the scales of inconvenience.14
[70] I do not accept the Igguldens have brought this situation on themselves. They were entitled to rely on the agreement for sale and purchase and their ability to waive clause 23. I also take into account that clause 23 was inserted by the vendor’s agent, who is also the agent for WDL, and WDL had a copy of the agreement containing the clause since 17 July 2014.
[71] If this application was granted the Iggulden family will be stranded. The Buffalo Beach store will have been sold and they will not be able to take possession of the new business, operate it, build it and develop it in pursuit of their stated goal to move up the supermarket ladder. They will also be deprived of the ability to earn an income from the business. They are a young family and the consequences will have both an immediate and an enduring personal and commercial effect on them and their family.
[72] I do not ignore Mr Gustafson’s submission that the adverse effects on the Igguldens can be mitigated by truncated proceedings brought on a priority basis. However, in the circumstances I do not believe that such a course is appropriate given the Igguldens’ position, particularly having regard to the sale of their Buffalo Beach business and the imminence of the settlement of the Pauanui business. I am conscious of the significant disruption and inconvenience which the Iggulden family would suffer in the event the orders sought were made. This is a loss which would
be considerably more difficult to compensate than that of WDL’s.
14 NZ Farms Co-op Assn of Canterbury Ltd v Farmers Trading Co Ltd (No 1) [1979] NZHC 2; (1979)
1 TCLR 18.
Status quo/delay
[73] Mr Quinn submits that the plaintiff’s delay in bringing this application favours the Igguldens’ position. Mr Gustafson submits that there has been no delay.
[74] The assessment of delay should focus on its effect and how any delay has affected the position of the parties rather than operating on the simple, but not necessarily correct, assumption that delay necessarily equates with prejudice.
[75] In E R Squibb & Sons (NZ) Limited v ICI New Zealand Limited McGechan J
said: 15
Delay in itself is not necessarily fatal. Its consequences depend upon the circumstances. The question of alteration of position and of result and prejudice is important.
[76] In the present case the delay is not great. Songle and the Igguldens signed the agreement for sale and purchase on 14 July 2014. Three days later, on 17 July
2014, WDL was given a copy of the agreement. Then, on 12 September 2014 the Igguldens confirmed that the conditions had either been met or were waived (including clause 23) thereby declaring the agreement was unconditional. Three days later Songle and WDL advised they disputed the Igguldens could waive clause
23. Thus the delay is modest and measured in only a couple of months. However, it is the effect of this delay which requires examination.
[77] WDL had the agreement in its possession from mid-July and yet took no steps to alert any of the defendants of their view that the waiver in clause 23 was in breach of the franchise agreement. The delay is unexplained on the evidence.
[78] Had WDL acted earlier it could have made an offer triggering the cash out clause and the agreement would have been brought to an end before the Igguldens changed their position by selling the Buffalo Beach store and taking the other steps
they have in reliance on the integrity of the agreement for sale and purchase.
15 E R Squibb & Sons (NZ) Limited v ICI New Zealand Limited HC Wellington, CP823/88, 22
December 1988.
[79] The delay in bringing WDL’s concerns to the attention of the Igguldens meant that the Igguldens relied upon the validity of the agreement, worked to meet the various special conditions, signed an agreement for sale and purchase for their Buffalo Beach store and thus placed themselves in a position where they were able to confirm the Pauanui agreement when they gave advice that they waived clause 23. It was only then that they were alerted to WDL’s view that clause 23 was incapable of being waived.
Overall balance
[80] I am satisfied that that balance falls in favour of the Igguldens. Although the loss of profits may be difficult to quantify I am not satisfied they are unquantifiable. Furthermore, I am satisfied that the loss of brand recognition and goodwill would be minor. The Igguldens have a strong defence that they were unaware of the requisite conditions in the franchise agreement and held a genuine belief they were able to waive the requirement of consent. The wording of the agreement, particularly clause
23, supports that conclusion. Finally I am satisfied that all defendants could meet a damages award made against them.
Overall justice
[81] The resolution of this case essentially comes down to a choice of which contract under consideration should be accorded the greater protection; WDL’s franchise agreement or the Igguldens’ agreement for the sale and purchase of the Pauanui store.
[82] The act of franchising involves a relinquishment of control in return for certain commercial benefits. WDL submits that the Pauanui store should stay as a SuperValue store. It thus seeks to control what happens to the Pauanui store but in circumstances where it elected to relinquish control. It relinquished that control when it elected not to purchase the business itself. It eschewed the opportunity and then, after receiving the agreement it did nothing. In doing nothing and relinquishing the control it could have exerted, WDL lost a degree of control. Implicit in the risk that comes with loss of control is that the acts of its franchisees may cause it harm. But that is the risk which comes with franchising.
[83] In all the circumstances I am satisfied that in the interests of the overall justice the application should be dismissed.
Result
[84] WDL’s application for an interim injunction is refused.
[85] Costs are awarded on a 2B basis in favour of the fourth defendants with disbursements as fixed by the Registrar.
Moore J
Solicitors/Counsel:
Lane Neave, ChristchurchMr Webb, Hamilton
Mr Gustafson, Auckland
Mr Quinn/Ms Thompson, Auckland
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